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Page 1: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page

Dallas/Ft. Worth Houston San Antonio Austin

Texas Market Overview Year End 2016

Page 2: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 2

Summary

The Take Away

The close of 2016 across the major Texas metros saw continued pockets of optimism within

Houston and San Antonio thanks to a sustained oil price of greater than $50/bbl and continued

growth within Austin and the DFW metroplex. While DFW continued to account for nearly

2/3rds of the jobs added during 2016, all four major metros contributed positive job growth

numbers and are expected to continue to do so during 2017. Austin continues to be a market of

choice for tech and entrepreneurs and even with recent slowing job growth, Houston remained

third among all major US metros during the past decade in terms of overall jobs gained thanks

to its varied economic strength and overall attractiveness for potential corporate relocations and

expansions. In 2017, the varied strengths among the major Texas cities will drive continued

growth and strength in rankings among the United States metro areas and insulate the state

against any economic uncertainties during the upcoming political transition.

Houston’s retail and industrial sectors carried much of the positive news during 2016 for the

real estate sector and will continue to do so in 2017. However, while office sublease space

shrank for the first time in nearly 2 years during the close of 2016, greater than 11 million

square feet remain in the market and Houston will continue to struggle to see positive lease up

in both the Class A office and multi-family markets. Record rental rate growth, leasing activi-

ty and absorption was seen in 2016 across Dallas’s CRE sectors, but the market overall is

reaching a tipping point as development continues and record leasing is needed to avoid va-

cancy spikes in 2017 and beyond. Austin and San Antonio registered a strong overall 2016,

with Austin’s office and multi-family markets, and San Antonio’s retail market being top per-

formers for occupancy rates and absorption, due to the cities’ desirability among millennials

(Austin) and tourists (San Antonio). 2017 will see challenges for CRE in Texas, but all 4

major metros should continue to see more positives than negatives during the year.

Houston 2000 West Loop South, Suite 1800

Houston, TX 77027

(713) 871-5800

San Antonio/Austin 402 East Ramsey Road

San Antonio, TX 78216

(210) 828-2112

www.q10kdhco.com

Page 3: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 3

Population (Major Texas Metros)

Source: Census.gov—Released March 24, 2016

One Year Increase in MSA Population

Source: Census.gov—Released March 24, 2016

Current MSA Population

Page 4: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 4

Texas MSAs Population

One Year Percentage Increase in MSA Population

Source: Census.gov—Released March 24, 2016

Page 5: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 5

Employment (Major Texas Metros)

Unemployment Rate

Year over Year Job Increase

Year over Year Job Increase Percentage

Page 6: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 6

Texas Metropolitan Statistical Areas

Page 7: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 7

Major Texas Office Market Summary

Current Occupancy

Year End

2016 Absorption

Amount of Space Currently

Under Construction

Page 8: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 8

Major Texas Retail Market Summary

Current Occupancy

Year End

2016 Absorption

Amount of Space Currently

Under Construction

Page 9: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 9

Major Texas Industrial Market Summary

Current Occupancy

Year End

2016 Absorption

Amount of Space Currently

Under Construction

Page 10: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Page 10

Major Texas Multifamily Market Summary

Current Occupancy

Year End

2016 Absorption

Number of Units Currently

Under Construction

Page 11: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Q10 Kinghorn, Driver, Hough –Q4 Austin Update

Office

2000 West Loop South | Suite 1800 713.871.5800 210.828.2112 Houston, TX 77027 Houston San Antonio

www.q10kdhco.com

Retail

Industrial Multifamily

Austin’s office market closed 2016 strong as higher rents didn’t lessen tenant demand. Much of this growth remains driven by the dominant technology sector of Austin’s economy. During the year, vacancy rates fell below 9 percent and

leasing activity crossed 5 million square feet. Roughly 3 million square feet of new

construction remains underway, and pre-leasing thanks to corporate expansions and

relocations remains strong. In terms of investment opportunities, the Austin office market remains one of interest as investors

focus on assets based on location, tenant mix, and building amenities. On the sales front, for the year, average PSF topped $275 across all building classes and cap rates compressed to

near 6.0%, furthering the metro’s desirability .

Austin’s multi-family demand continued in 2016 to be driven by its’ tech growth and the

Millennial residents that it draws in record numbers. A continued near record pace of

development was seen in 2016, with almost 13,000 new units arriving and 11,000 units still

under construction. Vacancy did tick slightly upwards at the close of 2016, but remains sub

5.0 percent, while rental rates increased to greater than $1,200 per month. Cap rates

remained near 6.0 percent across all property types as 2016 drew to a close, and investors

remained especially focused on premiere Class A properties that the Millennial users within the metro continue to look for. Cap rates for these

property types will continue to compress slightly during 2017 due to this demand.

Austin’s industrial markets closed record levels in 2016. Vacancy rates across all property

classes set a new low of sub 6.0 percent during the close of 2016, and rental rates of $10.44 per square foot maintained the 3rd quarter’s record

mark. Continued minimal new development (and strong demand and pre-leasing for the

little that is built on a speculative nature) will not affect Austin’s industrial vacancy levels in the near future. 3PL and logistics firms remain

dominant in terms of tenant demand throughout the metro. Investors focused on warehouse space of both single and multi-tenant nature in 2016 and cap rates across those properties were a half to full percent lower than the market average for the year

across all industrial property types.

Retail remained a dominant sector within Austin’s CRE market during 2016, with vacancy rates south of 4% across the market and rental

rates topping $20.00 per square foot. A continued population growth to outer-lying suburban areas is reflected in the nearly 1.2

million square feet of space still under construction tracking these residential rooftops. Big box grocery and other chain stores continue to be dominant users of much of this new space,

with more than 2.0 million square feet of leasing activity occurring during the year.

Retail cap rates remain at or near 6.5% across all property types and nearly $600 million in retail property sales transactions took place

during 2016.

Page 12: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Office Retail

Industrial Multifamily

.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

$0.00$4.00$8.00

$12.00$16.00$20.00$24.00$28.00$32.00$36.00

2010 2011 2012 2013 2014 2015 YE2016

Austin Vacancy vs Rent

Rental Rates Vacancy

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

2010 2011 2012 2013 2014 2015 YE2016

Austin Vacancy vs Rent

Rental Rates Vacancy

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

$0.00

$4.00

$8.00

$12.00

$16.00

$20.00

2010 2011 2012 2013 2014 2015 YE2016

Austin Vacancy vs Rent

Rental Rates Vacancy

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

$800.00$840.00$880.00$920.00$960.00

$1,000.00$1,040.00$1,080.00$1,120.00$1,160.00$1,200.00$1,240.00

201020112012201320142015 YE2016

Austin Vacancy vs Rent

Rental Rates Vacancy

Page 13: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Q10 Kinghorn, Driver, Hough –Q4 Dallas Update

Office

2000 West Loop South | Suite 1800 713.871.5800 210.828.2112 Houston, TX 77027 Houston San Antonio

www.q10kdhco.com

Retail

Industrial Multifamily

Dallas’s office market closed on a positive note during the end of 2016. Rental rates continued to climb, although at a slower rate than in the past and vacancy rates continued to flatten as new construction arrivals were balanced by

continued strong tenant demand for space. Of the nearly 11 million square feet of new

construction still underway, nearly 75% of that is poised to arrive in the next 12 months but

pre-leasing of the space remains strong. Strength in market was further seen in the

announced EPA and Occidental transactions, both accounting for more than 150,000 SF of

new leasing activity. Sales transactions closed down during the 4th quarter but overall 2016

saw nearly $2.0B in transactions and an average cap rate of just under 7.0%

Continued population growth within the DFW metroplex, combined with positive job growth during 2016 caused the multifamily sector to

experience a record year. Rental rates closed at nearly $1,100, up nearly 10% for the year.

Likewise, new construction within the sector continues at a record pace as 22,000 units throughout the metroplex are underway.

Additionally, due to the growth experienced within the DFW Metroplex area, multifamily development continues to expand to more

suburban areas like Frisco, McKinney and Plano. Cap Rates rose slightly during the 4th quarter to

approximately 6.75% across all property classes, but remain far below 2014 and 2015’s

marks of greater than 7.0%

Industrially, Dallas closed a record 2016 as nearly 24 million square feet of absorption was registered and vacancy rates continued to hold

below 6.0% market wide. 3PL firms continue to drive much of the industrial activity and seek

out DFW for the city’s population growth. This was seen in the fourth quarter as Geodis took

down nearly 1.2 million square feet of space in the western portion of the city. New

construction of nearly 19 million square feet arrived to market during 2016, and 22 million square feet remains under construction, much

of which is speculative in nature. Cap Rates reflect continued strength as they average 5.25% on stabilized Class A property and roughly 6.50% on stabilized Class B and C

product.

Retail within the DFW area in 2016 was a sector of strength as vacancy rates remained below

6% for the year and rental rates topped $15.00 for the year end, with top line rents reaching

above $20.00 in some established centers. Due to the population growth the metroplex is

experiencing as well as increased demand via corporate relocations and expansions, the retail sector continued to show a strong demand for

both Big Box and consumer specific retail space during 2016. While roughly 4 million square

feet of new retail deliveries came on line during the year, an additional 2.7 million square feet of development remains in the pipeline. As 2017 is poised to continue the demand growth seen

in 2016, retail in the DFW area should remain a sector of strength over the next 12 months.

Page 14: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Office Retail

Industrial Multifamily

.

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%20.0%

$0.00

$4.00

$8.00

$12.00

$16.00

$20.00

$24.00

$28.00

2010 2011 2012 2013 2014 2015 YE2016

Dallas Vacancy vs Rent

Rental Rates Vacancy

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

$0.00

$2.00

$4.00

$6.00

2010 2011 2012 2013 2014 2015 YE2016

Dallas Vacancy vs Rent

Rental Rates Vacancy

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

2010 2011 2012 2013 2014 2015 YE2016

Dallas Vacancy vs Rent

Rental Rates Vacancy

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%

$700.00$740.00$780.00$820.00$860.00$900.00$940.00$980.00

$1,020.00$1,060.00$1,100.00

Dallas Vacancy vs Rent

Rental Rates Vacancy

Page 15: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Q10 Kinghorn, Driver, Hough –Q4 Houston Update

Office

2000 West Loop South | Suite 1800 713.871.5800 210.828.2112 Houston, TX 77027 Houston San Antonio

www.q10kdhco.com

Retail

Industrial Multifamily

The conclusion of 2016 showed signs of improvement for Houston’s office market. While

sublease space continues to be a dominant discussion point, positive movement was seen in the quarter with several large takedowns of space. Rental rates across all building classes

reached just under $28/PSF, and vacancy reached 16% across all classes. Investors within the office market continue to view Houston with

extra caution and the pipeline of transactions closed during 2016 reflects that caution. 2017

and the hoped for improvement in market conditions as oil prices continue above $50/bbl

should see continued positive momentum in terms of space takedowns and transaction

volume as companies begin to add headcount.

Houston’s multi-family market was challenged in 2016 through a combination of

oversaturation and slowing lease ups. Vacancy rates overall reached 10%, and rental rates continue to flatten, with Class A properties’ rates bearing the brunt of continued white

collar job losses in the city. The multi-family market, and the Class A market especially,

continues to work through nearly 18,000 new units delivered during the past year, and nearly 23,000 units under construction. While Class B

and C property metrics continue to perform well and make them attractive to investors,

2017 will be an uncertain year for the Houston multi-family market with positive momentum being offset by continued struggles to lease up

higher end developments.

Houston’s industrial markets closed out a (relatively) strong year in 2016 with nearly 2.2

million square feet of absorption occurring across all building classes. However, vacancy

rates within the market did increase as the southern and southwestern portion of the industrial markets continued to struggle to

attract leasing activity. Additionally, nearly 2.8 million square feet of new deliveries reached

the market during the final quarter of 2016 and nearly 14 million square feet in total for the year, contributing additional vacancy to the

overall number. In 2017, as oil field services companies slowly begin to work through the

pain of the prior 24 months, Houston’s industrial market will again be dominated by

3PL and retail warehouse growth.

Houston’s retail market showed signs of continued strength during the close of 2016

with vacancy rates holding at 5.0%, with prime top-tier space having vacancy rates of half that

number. For the year, absorption topped 5 million square feet, as both new and established retail chains looked to grow their footprints. As

2016 drew to a close, big box expansions and grocery chain leases dominated much of the

momentum in the market, and helped to offset Golfsmith, Office Max, and other closures that

occurred during the end of the year. 2017 will see additional developments breaking ground to meet the demand of Houston’s population growth as well as continued diversification of

retail tenants as Lidl, Wienerschnitzel and others open in Houston.

Page 16: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Office Retail

Industrial Multifamily

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%

$0.00$4.00$8.00

$12.00$16.00$20.00$24.00$28.00$32.00

2010 2011 2012 2013 2014 2015 YE2016

Houston Vacancy vs Rent

Rental Rates Vacancy

.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 YE2016

Houston Vacancy vs Rent

Rental Rates Vacancy

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

$12.00

$14.00

$16.00

$18.00

2010 2011 2012 2013 2014 2015 YE2016

Houston Vacancy vs Rent

Rental Rates Vacancy

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%

$700.00

$740.00

$780.00

$820.00

$860.00

$900.00

$940.00

$980.00

$1,020.00

Houston Vacancy vs Rent

Rental Rates Vacancy

Page 17: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Q10 Kinghorn, Driver, Hough –Q4 San Antonio Update

Office

2000 West Loop South | Suite 1800 713.871.5800 210.828.2112 Houston, TX 77027 Houston San Antonio

www.q10kdhco.com

Retail

Industrial Multifamily

San Antonio’s office market, while the smallest of the major Texas metros, performed strongly in 2016. Average rental rates remained above

$23 per square foot across the market, and vacancy rates fell below 10 percent for the year

across all property types. Just over 800,000 square feet of office space delivered during the

year and an additional 1,000,000 remains under way with delivery within the next 18 to 24

months. This additional space remains less than 60% pre-leased and could cause an uptick in

vacancy rates in 2017. 2016 saw a compression overall of cap rates as investors and buyers

continued to look at San Antonio office space as a value proposition. This demand began to

weaken slightly in 2016, but may rise in 2017 as the market continues to improve.

Despite positive job growth, San Antonio’s multi-family sector fell off slightly at the close of 2016. Absorption of more than 4,000 units was nearly 20% less than that of 2015’s mark, and

with more than 7,000 units under construction, 2017 is poised as a challenging year. However, rental rate increases of greater than 4 percent, and an average rent of $970 per month, along with overall vacancy rates below 8.0% market

wide, have given an indication that high quality properties will remain leased. The central San Antonio and affluent suburban areas such as

San Marcos have seen cap rates compress to sub 6 percent in certain transactions. Overall, cap rates throughout the metro area remain at or

near 7.0% for the majority of transactions.

Industrially, San Antonio had a consistent performance in 2016, with nearly 1 million

more square feet of absorption than in 2015, along with sub 6 percent vacancy across all

property classes. Despite a slow down in under construction buildings, pre-leasing among the 1.3 million square feet still under way remains

strong. Sales wise, multi-tenant end user buildings remain desirable within the market and were the main transactional focus during 2016. Yield was the main focus of industrial

investors during 2017 as they are focused on maximizing yield with cap rates closing north of

7.5 percent across all property classes. Warehouse and distribution space remains the

most desirable in terms of both tenant and investor demand.

Tenant demand and population growth allowed the retail sector in 2016 to operate from a

position of strength with vacancy rates hovering near 4.0% citywide and rental rates across all property types topping $15.50, with premiere rents near $18.00 per square foot. Cap rates

decreased to close out the year to near 7.25% for retail space. While not exceeding the third

quarter’s record PSF numbers, both single tenant and multi tenant transactions remained near the prior quarter’s record marks. Retail development within the city fell off in the last

quarter of 2016 as multiple big box developments delivered and the focus shifted to

smaller more consumer specific retail developments.

Page 18: Texas Market Overview - Q10kinghorn.q10capital.com/.../sites/2/...Market-Update-Report-Suite.pdfPage Dallas/Ft. Worth Houston San Antonio Austin Texas Market Overview Year End 2016

Office Retail

Industrial Multifamily

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

$16.00

$18.00

$20.00

$22.00

2010 2011 2012 2013 2014 2015 YE2016

San Antonio Vacancy vs Rent

Rental Rates Vacancy

.

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 YE2016

San Antonio Vacancy vs Rent

Rental Rates Vacancy

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

$12.00

$14.00

$16.00

2010 2011 2012 2013 2014 2015 YE2016

San Antonio Vacancy vs Rent

Rental Rates Vacancy

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

$700.00

$740.00

$780.00

$820.00

$860.00

$900.00

$940.00

$980.00

$1,020.00

201020112012201320142015 YE2016

San Antonio Vacancy vs Rent

Rental Rates Vacancy